The WFI
Liquidating Trust, with Brian D. Shapiro as its trustee
(" Liquidating Trustee" ), was established upon
confirmation of the chapter 11[2] plan of the jointly
administered debtors Western Funding Incorporated ("
WFI" ), Western Funding Inc. of Nevada and Global Track
GPS, LLC (collectively " Debtors" ). The confirmed
plan empowered the Liquidating Trustee to litigate and settle
claims belonging to the chapter 11 bankruptcy estates,
provided that bankruptcy court approval be sought and
obtained to settle any claims over $50,000. The Liquidating
Trustee commenced litigation against American Express Travel
Related Services Company, Inc. and American Express Centurion
Bank (collectively " Amex" ) to avoid and recover
over $2 million in allegedly fraudulent prepetition transfers
made by WFI. Subsequently, the Liquidating Trustee requested
the bankruptcy court's approval of his agreement to
settle the claims against Amex for $331,476.53.

Greif &
Co. (" Greif" ), a beneficiary of the WFI
Liquidating Trust, objected to the proposed settlement. Greif
argued that the settlement amount was unacceptably small, and
the Liquidating Trustee had undervalued the claims in his own
complaint. Ultimately, the bankruptcy court approved the
settlement. Greif appeals; we AFFIRM.

I.
FACTUAL BACKGROUND

A.
Events leading up to and including confirmation

WFI was
a servicer of subprime auto loans. In 2010, Harbor Structured
Finance LLC, a Delaware entity controlled by Frederick and
Katherine Cooper, acquired WFI. The Coopers were appointed to
management positions in WFI. They established Amex credit
card accounts for themselves and other employees. Although
WFI was not the holder of any of the Amex cards, the Coopers
routinely caused WFI to pay the balances on the cards. In
WFI's accounting records, the Coopers designated many,
but not all, of the charges on their Amex cards as business
expenses.

In
2013, WFI filed a chapter 11 petition, and the case was
administratively consolidated with the chapter 11 cases of
the two other Debtors. On March 31, 2014, the bankruptcy
court approved a joint plan of liquidation (the "
Plan" ) for the Debtors. The Plan provided for the
dissolution of the Debtors and the vesting of all property of
the Debtors' bankruptcy estates in the WFI Liquidating
Trust (" Trust" ) to be administered by the
Liquidating Trustee. This vesting specifically included any
claims or causes of action held by any of the Debtors'
estates. Creditors of the Debtors' estates became
beneficiaries of the Trust. The Plan gave the Liquidating
Trustee the " exclusive right, authority, and discretion
to determine and to initiate, file, prosecute, enforce,
abandon, settle, compromise, release, withdraw, or
litigate" any claim " and to decline to do any of
the foregoing without the consent or approval of any third
party or further notice to or action, order, or
approval" of the bankruptcy court. The Plan also
permitted the Liquidating Trustee to " sell and/or
assign" claims to a third party to be pursued for the
assignee's " own benefit." The only stated
limitation on the Liquidating Trustee's settlement
authority was that bankruptcy court approval would be
required to settle any claim seeking to recover more than
$50,000. Neither the procedure for requesting such approval
nor the criteria for granting it were specified. The Trust
was to be administered according to a WFI Liquidating Trust
Agreement (" Trust Agreement" ), which authorized
the Liquidating Trustee, among other things, to settle
actions in his " good faith judgment."

B.
The adversary proceeding and the settlement

Several
months later, the Liquidating Trustee filed an adversary
proceeding complaint against Amex, seeking to recover
allegedly fraudulent transfers. The transfers at issue were
the payments made by WFI to Amex on the Coopers' credit
card accounts. In the complaint, the Liquidating Trustee
alleged that the " overwhelming majority" of the
credit card charges were for personal expenses of the Coopers
and other employees. Because the charges were for personal
rather than business expenses, the Liquidating Trustee
alleged that WFI did not receive reasonably equivalent value
in exchange for paying them. In the two years preceding
WFI's bankruptcy filing, the charges totaled over $2
million. The complaint asserted the following theories of
avoidance and recovery:[3]

1. The transfers were avoidable under §
548(a)(1)(B)(ii) because the transfers were made at a time
when WFI either was insolvent or was about to engage in
transactions leaving it with unreasonably small capital
(" Insolvency" theory).

2. Some of the transfers were avoidable under §
548(a)(1)(B)(ii)(IV) because they were " made under an
employment contract for the benefit of an insider, outside
the ordinary course of business" (" Employment
Contract" theory).

Amex
contacted the Liquidating Trustee to initiate settlement
negotiations on December 8, 2014, approximately two weeks
after the complaint was filed. Five months later, the parties
reached a settlement, and the Liquidating Trustee filed a
motion with the bankruptcy court seeking approval of the
settlement (" Settlement Motion" ). Amex agreed to
pay $331,476.53 to the Trust in exchange for dismissal of the
adversary proceeding and a mutual release of claims, and Amex
would be entitled to an allowed general unsecured claim under
the Plan in the amount of the settlement payment.

The
Liquidating Trustee took the position that, because he
derived his authority not from the Bankruptcy Code but from
the terms of the confirmed Plan and the Trust Agreement, he
was not a " trustee" as that term is used in the
Code and Rules. Thus, he argued that standards governing
settlement motions by bankruptcy trustees were not
applicable. The Liquidating Trustee argued he was entitled to
" greater deference in approval of settlements"
based on the Plan and Trust Agreement, but he contended that
the Settlement Motion should be approved regardless of
whether the bankruptcy court accepted that argument.

In the
Settlement Motion and an accompanying declaration, the
Liquidating Trustee went on to analyze the settlement under
the factors enumerated in Martin v. Kane (In re A & C
Properties),784 F.2d 1377, 1381 (9th Cir. 1986) (the
" A & C Factors" ). The Liquidating Trustee
recognized the claims asserted in the complaint were
susceptible to factual dispute. In particular, though the
Liquidating Trustee believed certain of the charges in
question were " easily identified" as personal, he
acknowledged that others were subject to dispute as to
whether they were legitimate business expenses that may have
provided value to WFI. Likewise, the Liquidating Trustee
believed that WFI was undeniably insolvent at the petition
date and that the evidence " strongly supported" a
finding of insolvency at least nine months earlier. Yet he
recognized the difficulty in proving that, as he suspected,
the insolvency period had begun much earlier still. He
concluded:

In my business judgment, compromise results in a fair and
reasonable recovery for the estate, factoring in the overall
recovery, my estimate for success in the resolved matter, and
the significant costs and delay necessarily associated with
litigating in an effort to obtain greater recovery.

. . . Furthermore, the compromise represents an immediate
recovery for the Liquidating Trust that will allow for
payment of a large portion of the outstanding administrative
expenses, which in turn maximizes the probability that future
recoveries will allow for meaningful distribution to general
unsecured creditors, and makes additional funds available for
payment of cost[s] and expenses in pursuit of other causes of
action.

. . . Accordingly, I assert that the compromise is in the
best interest of the bankruptcy estate's creditors.

C.
The dispute over the Settlement Motion

Two
creditors, Greif and Guerin Senter, expressed views on the
settlement. Mr. Senter supported and joined in the Settlement
Motion, but Greif vigorously opposed it. Greif complained
that the proposed settlement would pay subordinated
administrative claims, including Mr. Senter's claim, but
other creditors would likely receive nothing. Greif wanted
the Liquidating Trustee " to present the relevant facts
and legal analysis surrounding the claims asserted [in the
complaint] (and an explanation of why some theories were left
out)" to allow the bankruptcy court to evaluate the
Settlement Motion. Greif presented its own analysis of the
Insolvency and the Employment Contract claims, along with an
additional theory of recovery under § 548(a)(1)(A),
which the Liquidating Trustee did not assert ("
Fraudulent Intent" theory).

Concerning
the Insolvency theory, Greif believed WFI likely became
insolvent in August 2010 and was rendered " even more
leveraged" after a March 2012 transaction. Greif argued
that these facts supported greater recovery. As to the
Employment Contract theory, Greif noted that insolvency is
not an element and questioned the lack of discussion of this
theory in the Settlement Motion. Regarding both theories,
Greif demanded additional details concerning the methodology
by which the parties arrived at the settlement amount, as
well as information concerning the expected difficulty and
expense of prevailing in litigation. Finally, Greif asked the
bankruptcy court to require the Liquidating Trustee to
justify his decision not to pursue a Fraudulent Intent claim.

The
Liquidating Trustee filed a reply to Greif's objection in
which he provided some of the additional information Greif
requested. He explained that the settlement amount was based
on calculations using two " estimates in
compromise" between himself and Amex. First, the parties
had divided the universe of questioned credit card charges
into two categories, which the Liquidating Trustee called
" Type 1" and " Type 2" charges. Type 1
charges were those that the Coopers had not designated as
business expenses. Type 2 charges were those that were
designated as business expenses, though the Liquidating
Trustee disputed the accuracy of that designation. For
purposes of calculating the settlement amount, the parties
agreed to treat all Type 1 charges and exactly half of the
Type 2 charges as having provided no value to WFI. Second,
the parties agreed, again as an " estimate in
compromise," that WFI " would probably be found to
be 'insolvent' . . . from January 2013 onward."
The Liquidating Trustee emphasized that the parties had
disagreed during negotiations as to the correct ...

Our website includes the first part of the main text of the court's opinion.
To read the entire case, you must purchase the decision for download. With purchase,
you also receive any available docket numbers, case citations or footnotes, dissents
and concurrences that accompany the decision.
Docket numbers and/or citations allow you to research a case further or to use a case in a
legal proceeding. Footnotes (if any) include details of the court's decision. If the document contains a simple affirmation or denial without discussion,
there may not be additional text.

Buy This Entire Record For
$7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.